Attorneys For Franchise Law – Gunderson, Denton & Peterson

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Crafting a sales agreement that will maximize your return on investment and limit liabilities

Large risks are involved when starting a business. According to the Small Business Administration, only half of new businesses survive past five years. One way to reduce the risk of being a business owner is to buy an existing business with proven cash flow or profits. Although buying an existing business reduces risk, it comes with a heavy price. To protect the investment, a purchaser needs to make sure that he receives what he bargained for. This can be accomplished by ensuring that a comprehensive sales agreement is created.

When buying a business there are many issues that need to be addressed. An attorney can assist you by asking the key questions and focusing on the areas that will have the greatest impact on the business’s future success. For example, what parts of the business should you buy? Is it better to buy the existing business entity or should a new entity be formed to only purchase the assets? The manner in which the business is purchased can have a great impact on a business’s future liabilities. The answer to these questions will depend on the specific circumstances surrounding each business purchase. And how you answer can make a huge difference as to your taxes, profits and potential problems down the line.

When buying a business, there is frequently a concern that the previous owner will form a new competing business. To solve this potential, an attorney can create a Covenant not to Compete. This covenant should be an essential part of the sales agreement as it will prevent the previous owner from becoming a competitor for a determined amount of time, increasing your chances for success.

Buying a business without a comprehensive sales agreement exposes you and your business to financial risk. With the help of an experienced Arizona business attorney, you can limit your risks and increase your potential earnings by having a favorable sales agreement that addresses the key issues.

Mesa Arizona Business Attorney Article On Franchise Disclosure

Franchise Law Disclosure Requirements

The requirements of the Federal Trade Commission’s Franchise Rule

The franchise industry is large and growing larger. The U.S. Census Bureau recently collected franchising data for certain industries and found that in those industries 10.5% of businesses were franchises and $1.3 trillion of the $7.7 trillion total sales were from franchises.[i] There is a lot of money in the franchise market, and it can be very lucrative for an individual with a successful business to franchise that business. However, in order to comply with the law and ensure long-term profitability, a franchisor needs to abide by the franchise rules and regulations set forth by the Federal Trade Commission – specifically the Franchise rule. The Federal Trade Commission has brought cases against hundreds of companies based on the Franchise Rules. An Arizona Franchise Attorney can help navigate the complex rules.

A key part of the Federal Trade Commission’s Franchise Rule is the Franchise Disclosure Document (FDD). The FDD is a legal document given to potential franchisees by the franchisor to disclose information on many areas of the franchise business. Use of the FDD was mandated by recent changes to the Franchise Rule, and it replaces the previously used Uniformed Offering Franchising Circular (UFOC). A franchisor is required to provide this document at least 14 days before a sale is made, as his Arizona franchise lawyer can tell him. The Federal Trade Commission’s regulations require certain specific information to be included in the FDD. The Franchise Rule contains 23 Items that must be included in the FDD. The following is a brief description of six of the Items:

– Item 2: Business Experience – The FDD must have the business experience over the previous five years of key individuals in the franchisor’s business. Key individuals usually include the franchisor’s directors, trustees, general partners, and principal officers.

– Item 5: Initial Fees – Any money that must be paid by the franchisee to the franchisor before the franchisee’s business opens must be disclosed. If the fee is not set, the possible range of the fee or a formula to determine the fee must be given.

– Item 12: Territory – The Franchisor’s FDD must specify whether the franchise is for a specific geographic location. The Franchise Rule contains specific language that must be included if the franchisor is not granting an exclusive territory. If the territory is exclusive, remedies must be given in case there is an intrusion into that territory, as stated in the franchise agreement negotiated by the Arizona business franchise lawyer. Any restrictions on the franchisor from soliciting or accepting orders from consumers inside the franchisee’s territory must be specified.

– Item 17: Renewal, Termination, Transfer, and Dispute Resolution – A table must be added to the FDD that outlines the franchise relationship. A brief description of required contract provisions must be included in the table.

– Item 21: Financial Statements – The franchisor must include a balance sheet and statements of operations, stockholders equity, and cash flows. These statements should be audited by an independent auditor and be completed according to GAAP (generally accepted accounting principles). There are specific exceptions for start-up franchisors, but even then audited financial statements should be provided as soon as practicable.

– Item 23: Receipts – The Franchisor’s FDD must have two copies of a detachable acknowledgement of receipt. The Franchise Rule contains specific language that must be used in the acknowledgement of receipt.

This is just a small sample of what must be included in the FDD. As can be seen, franchise law and the requirements for the Franchise Disclosure Document are evolving and complex. Having an experienced franchise attorney is essential if you are franchising your business or looking to buy a franchise. Attorneys at Gunderson, Denton & Peterson, PC are experienced in working with franchisors and franchisees on their franchising issues. Attorneys from the firm are available to meet with you to review and analyze the Franchise Disclosure Document or address any other franchise or business issue.

Through many months of rebuttals, my side of the story hasn’t changed but her side has. Now the company wants to know if there is anything I want to settle this out of court, such as my job back or a money settlement. I’m not sure what to do. I have no money for a lawyer to help me.

A: It’s not possible to give a useful answer with the limited amount of information that you have given. If they are offering to settle, then perhaps you can ask them for their offer first–then see if it’s worth the peace of mind to take it and move on with your life. Keep in mind that their first offer is probably going to be less favorable to you than their best offer–in other words, if you negotiate, you’ll probably do better. Good luck!

* This answer does not constitute legal advice. I am admitted in the State of Arizona only. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. You should not rely on this advice alone, and nothing in these communications creates an attorney-client relationship.

2007 I bought a franchise Insurance agency with no books, I brought my own clients to this business. On year 2008 September they stopped paying my commision, rent, utilities as the contract was specified… they filed chapter 7 bankruptcy ..there is a bank in New York that has been sending me letters. I own this franchise to them and hire a lawyer to sue me, what can I do to defend myself. I need help please..this lawyer already sent me a subpoena and sent me to jail for three days.

A: One area to look at is whether the franchisor properly disclosed everything that is required in a Franchisor Disclosure Document, which is required by federal law. Determining whether the franchisor did what is required is a complicated legal issue. You may have regulatory and other rights.

If you are being threatened with legal action of some sort, it is important that you retain a lawyer as quickly as possible. You do not want deadlines to go by without taking action to protect yourself–otherwise a court may find against you on things that you haven’t even considered.

* This answer does not constitute legal advice. I am admitted in the State of Arizona only. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. You should not rely on this advice alone, and nothing in these communications creates an attorney-client relationship.